THE BATTLE FIELD'S

As retailers roll into their make-or-break season, Dayton Hudson Corp. can take comfort in the fact that its Marshall Field's stores still are revered by many longtime Chicagoans.

The problem is, other patrons are leaving the fold faster than you can say "Frango mints in Detroit."

When Field's shoppers travel to Motown and find those mints, once synonymous with Chicago, being sold at Hudson's (Field's sister department store), it leaves an unsavory taste in their mouths.

The fact that the Field's credit card is good at Dayton Hudson's Target discount stores doesn't make loyalists feel any better.

What had been unique about Field's-its superior service, inventory and reputation-has suffered.

"I don't shop at Marshall Field's that much anymore; there's nothing special," says Pam Wylie, a Gold Coast resident who's been a Field's shopper for 40 years. "I find them sort of run-of-the-mill."

Minneapolis-based Dayton Hudson is admired for its retailing prowess, especially in the exploding value-driven arena, and for its solid stewardship of its Dayton's and Hudson's chains.

However, when Dayton Hudson bought premium-priced Field's in 1990 for $1.1 billion from BAT Industries plc of Great Britain, Dayton Hudson consolidated the three chains into a single operation run from Minnesota.

"Field's is really not Field's anymore, and you see that in its stores," says the president of a Midwest vendor that sells to Dayton Hudson. "Marshall Field used to be somewhere between Saks and Dayton's, but it's really become more of a Main Street department store."

The result is a watered-down retailer (Dayton Hudson, however, says it has improved the State Street and Oakbrook Center stores) with a split personality that confuses traditional customers who don't know what the 142-year-old institution now stands for.

On one hand, Dayton Hudson wants to belong at the high end, with Nordstrom, Bloomingdale's, Neiman-Marcus and Saks Fifth Avenue. On the other, it's catering to the booming-but-crowded middle tier, competing with a rejuvenated Carson Pirie Scott, a thriving J. C. Penney, a growing Kohl's and a resurging Sears.

Except at the company's second-most-important store (after the State Street flagship): Water Tower Place.

Mr. Watson says he may have devoted too much attention to State Street, where he added designers such as Donna Karan and Calvin Klein, and let fashion merchandise slide on Michigan Avenue.

"I fault myself for not keeping a close enough eye on Water Tower," says Mr. Watson, who hopes to correct the situation by bringing three buyers from Minnesota to Chicago and hiring some key personnel from Neiman-Marcus. Field's also is "thinking hard" about remodeling the Water Tower store.

In the short run, Dayton Hudson doesn't seem to be getting hurt. Mr. Watson says Field's profits and revenues-about 40% of Dayton Hudson's department store business-have grown each year since its acquisition. (Except for this year, because of multimillion-dollar facelifts at Old Orchard Center and Woodfield Shopping Center.)

What's more, by paying closer attention to moderate customers, Field's is bringing more business to its lower-profile stores in the suburbs, Mr. Watson says.

When Dayton Hudson took over, the five top-performing Chicago-area stores-State Street, Oakbrook, Water Tower, Woodfield and Old Orchard-accounted for 50% of Field's business. That has been whittled to 45%, thanks to better performances at Field's remaining 18 stores, Mr. Watson says.

The growth of Dayton Hudson's 63-store department store division has been steady but unspectacular.

Revenues were up 3% to $2.15 billion for the first nine months this year, after posting a 1% gain in the year-earlier period.

Operating profits haven't been as steady-spiking 18% in 1993 due to cost-cutting, but showing no gain in this year's third quarter.

The company's real growth is coming from powerhouse Target.

Target's nine-month revenues of $9.05 billion were up 15% (6% for same-store sales), compared with the year-earlier period. The unit now accounts for about 60% of the company's revenues.

The department stores' 3% gain in same-store sales this year lags increases at competing department stores, which have been averaging same-store increases of 4% to 5%.

Target's dominance has fueled speculation that Dayton Hudson has been approached by-among others-St. Louis-based May Co. about selling its department stores.

But Mr. Watson scoffs. "It's a fantasy," he says. "Of course, they are interested. So would I, if I were them. But we're not selling."

Such speculation only muddies the picture of Field's future.

"Field's still has cachet in Chicago-it owns Chicago from a name position," says Neil Stern of Chicago-based retail consultancy McMillan/Doolittle. "But it hasn't done anything to enhance that position, and I think there are things it's doing that are turning customers away." Constant cycle of sales

A constant cycle of sales spurs a steady stream of traffic into the stores. Says Field's President Daniel Skoda, "We tell our customers day in and day out that we have values every day."

Yet such a strategy can prove to be an addiction.

"We call it being on the promotional needle," says Mr. Stern. "It's like being on drugs, because once you're on the promotional needle, it's hard to get off of it."

By aiming for middle-market customers, Dayton Hudson gave the Field's customers who wanted better service a reason to look elsewhere: to Nordstrom, for instance, or Bloomingdale's or Saks.

The company should pay close attention to the likes of 63-year-old Barbara Eckstrom of Oak Lawn.

"I love Field's," she says. "That's always my first stop. The service is good, but it's nothing like it was years ago."

Mr. Watson says Field's still tries to give women like Ms. Eckstrom what they want.

"We work on that issue," he says. "We spend more on customer service than May Co. or Dillard's. We still may not be the best, but we want to be."

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